By Louise Egan and Randall Palmer
OTTAWA, May 2 (Reuters) - Canada tapped an outsider on Thursday to head its central bank, bringing in the well-respected head of the Canadian export credit agency, who immediately stressed the need to nurture a choppy economic recovery.
Incoming Bank of Canada Governor Stephen Poloz, 57, worked at the central bank for 14 years earlier in his career. But he has spent the last 14 years at Export Development Canada.
Poloz takes over as central bank chief on June 3 when Mark Carney leaves, a surprise for markets, which had tipped Carney’s senior deputy Tiff Macklem as the most likely choice. Carney becomes governor of the Bank of England on July 1.
In his debut with reporters, Poloz was careful not to contradict the views that Carney and the central bank expressed in their quarterly economic report last month.
“We are in a recovery that is not as vigorous as would normally be expected and ... I think it will be necessary to nourish it, I don’t know for how long,” Poloz said in an introductory news briefing in Ottawa.
Canada’s economy recovered well from the 2008-09 recession thanks to aggressive government spending, tax cuts and record-low interest rates. But growth stalled last year, with the economy recording its slowest two quarters of growth since the crisis.
The Bank of Canada has kept its key rate on hold at what it describes as a stimulative 1 percent since 2010. But it has signaled for the past year that the next move will be a rate hike, not a cut. [ID: nL2N0D40HM]
Poloz said exports now needed to fuel the Canadian economy, and he believed this was already starting to happen. Canada unexpectedly recorded a trade surplus in March, the first monthly surplus after a year of deficits.
“In my judgment, it’s looking promising. I hope you agree with that,” he said, turning to Carney, who smiled broadly: “Yes, absolutely,” Carney replied.
Analysts do not expect Poloz to rethink central bank policies, especially because of his experience working there earlier in his career. The bank, which guards its independence jealously, targets inflation of 2 percent, but has said it will be flexible with the timeline for reaching that target in difficult economic times.
“The move was a surprise, but I don’t look for any change in monetary policy,” said Craig Wright, chief economist at Royal Bank of Canada.
Unlike the U.S. Federal Reserve or the Bank of England, there are no discernible “hawks” or “doves” among the Bank of Canada’s six governing council members because the council reaches decisions by consensus and takes pains to speak from a common script at public appearances.
Poloz will serve a seven-year term.
In a Reuters poll on April 10, Poloz was seen as the second most likely candidate to get the job after Macklem.
Poloz appeared upbeat about signs of gradual cooling of the once-hot Canadian housing market and a slowing in record-high household debt levels in Canada - both top concerns of Finance Minister Jim Flaherty.
“Of course it’s a concern in the sense of where we are,” Poloz said. “However, the evolution appears to be constructive, and I think that’s great, for us to continue to watch that and to, if you like, nurture that process of a return to more normal conditions.”
Economists have said Poloz has the credentials to succeed as governor and that he was viewed as a governor-in-waiting in his previous period at the central bank.
He is a good communicator, described by one person as “folksy” in his speeches but also whip-smart. He worked at a private-sector financial research firm in Montreal for five years after leaving the central bank.
Poloz joined EDC, a quasi-independent organization that provides loans to importers of Canadian goods, in 1999 as its chief economist and became president of the agency in 2010.
One possible strike against him was the perception among some market players that he may be more sympathetic than his predecessors to exporters’ complaints about the strong Canadian dollar and lean towards a weaker currency.
RBC assistant chief economist Paul Ferley dismissed that notion.
“This would do a disservice to Poloz’s early career at the central bank where the priority is to set monetary policy to achieve an appropriate rate of inflation,” he said.
Poloz will have only about a month to transition to his new role, much shorter than the four months Carney had between his appointment in October 2007 and his first day of work in February 2008.
This is the third time in a row that the top job at the Bank of Canada has gone to an outside candidate rather than to the most senior internal policymaker, in this case Macklem.
Macklem said in a statement that he would stay with the bank and looked forward to working with Poloz.